gdog

The End of the U.S. As We Know It: Tracking the Dollar Downward

Paco is undoubtedly a very smart guy, but he is over-concerned with what I would call false dynamics.

Everything, much of what he speaks about are long term projections of gloom without long term projections of glory.

In the past 300 years we have seen at least 3 or 4 major energy revolutions, each of which has transformed economic potential far beyond what previous generations generally thought possible, the next revolution is within grasp and it will similarly revolutionize our societies. Economic gains resulting from investment is how we ensure that debt obligations will be met.

Invest in america, invest in the future, it's the best bet you can make. Or believe the world is coming to an end, in which case I'd forget about economics and contemplate my immortal soul, or something like it.

Treasuries Struggle Alongside Stocks

If the foreign banks go to gold, the effect will be the same. Euro currencies are in the same trouble as the dollar, and if the chinese don't want treasuries, than what? US equities? Gold? Guess whose got the gold market cornered, and the US gov't usually does everyone a favor by keeping the price in check.

But if us creditors stop believing in us credit worthiness, this implies extreme US asset appreciation. It's just paper after all.

Basically us asset to debt ratio increases as the dollar devalues if treasuries are rejected, it will just happen immediately as the world falls apart, instead of over a controlled period of time. Not a situation that anyone wants.




On Jan 25 04:45 AM dakyne wrote:

> There are other reasons why sovereigns find US Treasuries at these
> yields distasteful:
>
> 1) future threat of inflation over the next 30 years (risk profile
> at these levels are potentially catastrophic)
> 2) they already have too much exposure in the dollar in their reserves,
> which is being debased by monetary easing.
> 3) Because of deteriorating fundamentals of the dollar, the Chinese
> and the Saudis are diversifying their reserves into gold, which is
> a hedge against debased currencies (worldwide).
>
> Basically, there is growing distrust in the US government, and by
> extension, its monetary policies and the dollar. At some point,
> US Treasuries will no longer be viewed as havens in a flight to safety
> and quality.
>
> That's when the game will be over, as rising rates will render servicing
> of the national debt untenable. In other words, these trillion dollar
> bailouts won't be free lunches, and the burden will be placed on
> tax payers to fund, even though the American consumer is already
> tapped out. God help us all if the US Government loses its AAA rating--the
> UK is on the brink due to its teetering banking industry.
>
> On Jan 25 04:33 AM dakyne wrote: